Leveraged Loans Surge in Europe to Six-Month High, Markit Says
European leveraged loans climbed to the highest level since August after the euro region’s finance ministers approved a second bailout package for Greece and the U.S. Federal Reserve said 15 of the country’s 19 biggest banks passed stress test scenarios.
The average bid price for actively traded European bank debt rose 0.25 percent to 89.32 cents on the euro in the week ending Mar. 16, extending the past month’s gain to 1.19 percent, according to Markit Group Ltd. U.S. leveraged-loan prices were almost unchanged for the week, at 93.06 cents on the dollar, and up 0.51 percent in the past month.
“Positive reaction from what is at least a near-term stabilization of sovereign issues in Europe and the stress tests in the U.S. pushed loans returns to their highs of the year,” Otis Casey, director and loan-market analyst at Markit in New York, said in an e-mail.
Finance ministers from the 17 nations that use the euro approved a 130 billion-euro ($172 billion) bailout for Greece last week, after months of negotiations between Greece, the International Monetary Fund and euro-area authorities. The Fed said on March 13 that a majority of banks tested would be able to maintain capital levels above a regulatory minimum in an “extremely adverse” economic scenario, even while continuing to pay dividends and repurchasing stock.
Senior loans backing the buyout of Flint Group Inc., a printing ink maker owned by CVC Capital Partners Ltd., rose 4.2 percent to trade at 95.13 cents on the euro, Markit prices show. Flint last week offered to increase the interest margins on its 2.6 billion euros of leveraged loans in exchange for looser covenants. Premier Foods Plc (PFD)’s term loan A1 rose 4.6 percent to 72.67 pence on the pound after lenders agreed to extend 1.4 billion pounds ($2.2 billion) of bank facilities to June 2016.
Yell Group Plc (YELL)’s term loan B2 dropped 7.2 percent to trade at 31.67 cents on the euro, Markit said. French building- materials supplier Materis SA saw its second-lien term debt fall 3.8 percent to 67.75 cents on the euro.
Leveraged loans are typically used to fund buyouts. The debt is taken in the name of the acquired company, and the burden triggers a downgrade in the target’s rating to junk, or below Baa3 by Moody’s Investors Service and BBB- by Standard & Poor’s.
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